The QBI Deduction (§199A) for Physician-Owned Practices
Reviewed by Scott Nielson, CPA, Partner, Director of Tax on
A solo physician earning $400,000 in a joint return can claim the full 20 percent qualified business income deduction and shave tens of thousands off the federal bill. The same physician earning $560,000 loses the deduction entirely. The rule that draws that line, IRC §199A and its specified service trade or business classification, is unforgiving for medicine. Understanding where a practice sits in the phase-in range, and how to move that position with lawful planning, is the QBI deduction physicians most often mishandle.
The good news is that the deduction survived through 2026 and is now permanent under the One Big Beautiful Bill Act. That removes the sunset uncertainty many practice owners had been planning around. What remains is the SSTB haircut, the income thresholds, and a handful of moves inside the phase-in range that can preserve some or all of the deduction.
How §199A Works for a Physician-Owned Practice
Section 199A allows owners of pass-through businesses, meaning sole proprietors, partnerships, S corporations, and LLCs taxed as either, to deduct up to 20 percent of qualified business income from taxable income. The deduction reduces the tax bill without reducing self-employment tax, and it applies at the individual level, not the entity level. For a physician-owner of a professional S corporation earning $300,000 of qualified business income after reasonable compensation, the deduction is worth up to $60,000, which at a 32 percent marginal bracket is roughly $19,200 of federal tax saved.
The catch, for medicine specifically, is the SSTB rule.
The SSTB Rule and Why Medicine Falls Under It
Section 199A explicitly names health as a specified service trade or business. So do law, accounting, consulting, performing arts, actuarial science, athletics, financial services, and any trade or business where the principal asset is the reputation or skill of the owners. For these categories, the deduction phases out based on taxable income and is fully lost above the top of the phase-in range.
For a medical or dental practice, the SSTB classification means the deduction is available at lower income levels, restricted in the phase-in range, and unavailable above it. The wage and property tests that expand the deduction for non-SSTB businesses do not open the door for a physician-owned practice above the phase-out ceiling.
2026 Income Thresholds and the Phase-In Range
For tax year 2026, the taxable income thresholds are $201,775 for single filers and $403,500 for married filing jointly. The phase-in range extends $50,000 above threshold for single filers, ending at $276,775, and $100,000 above threshold for joint filers, ending at $553,500.
Below the threshold, a physician-owner gets the full 20 percent deduction. Inside the phase-in range the deduction is proportionally reduced. Above the top of the range, an SSTB physician gets zero. A joint-filer physician with $478,500 of taxable income, exactly halfway through the phase-in range, is entitled to half the deduction.
Note that the trigger is taxable income, not qualified business income and not adjusted gross income. Retirement contributions, itemized or standard deductions, above-the-line deductions, and even the QBI deduction itself all affect the calculation.
Planning Moves Inside the Phase-In Range
Once a practice owner lands inside the phase-in range, three levers can meaningfully move the number.
Retirement contributions are the largest. A cash-balance defined benefit plan can shift six figures of taxable income into deferred territory, moving a joint-filer physician from the middle of the phase-in range to below the threshold and restoring the full deduction. For a solo physician with the capacity, this is often the single highest-leverage move available.
Reasonable compensation is the second lever, but the direction is counterintuitive. For an S corporation, higher W-2 compensation reduces qualified business income and therefore the deduction, but also reduces the SSTB owner’s taxable income by shifting profit to wages that are then reduced by employer payroll tax and 401(k) deferrals. The right level depends on facts specific to each practice.
Entity choice is the third. Splitting a practice into an SSTB entity and a non-SSTB entity, such as a real estate holding company that owns the office building, can preserve deduction on the non-SSTB side even when the medical entity is above the ceiling. The crack-and-pack strategy has become harder in recent years, and the regulations restrict shared ownership above 80 percent, so this needs careful structuring rather than a template.
The Bottom Line for Idaho and Utah Practice Owners
The §199A deduction is now permanent, which means planning around it is worth the effort every year, not just in TCJA sunset scenarios. For a physician-owner in Idaho Falls, Boise, Provo, or Salt Lake City, the value of getting the calculation right is often $10,000 to $30,000 a year, and the planning window closes on December 31.
Our team at Cooper Norman helps physician and dental practice owners in Idaho and Utah run the numbers on §199A planning alongside retirement contributions, S-corp wage decisions, and entity structure. If your taxable income for 2026 is trending toward the phase-in range, the time to model it is now, while there is still runway to move the levers.
This overview is general information, not tax advice for your specific situation.